Determine equivalent annual cash cost to the company

Assignment Help Financial Management

Reference no: EM131935681

A new 5-axis CNC machine can be bought for $2,500,000. The company is considering 3 means of buying the machine, a cash purchase or two types of loans. One loan is available at 5.4% interest based on a capital recovery with a return for a 4 year term. The other loan requires only interest payments for the first 3 years with the entire principal and the last year's interest at the end of year 4. The interest on this loan is 4.2%. Operating and maintenance costs are estimated at $160,000 for the first year, increasing at $15,000 per year. Using the MACRS for 5 years to calculate depreciation, determine the equivalent annual cash cost to the company for a 6 year study period. The company is profitable and pays an annual income tax rate of 45%. Use a MARR of 17%. Consider three cases, the cash purchase and each of the two loans described above. If the machine is sold exactly 3 years after its purchase for $800,000, what is the capital gain or loss on the sale of the machine?

Reference no: EM131935681

Questions Cloud

Write about Mississippi Burning movie : Write one page and half about this movie. There is a movie its name "Mississippi Burning"

What is the balance of current assets on firm balance sheet : The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $5.0 million and net fixed assets

Sorts of things might need clarification : Who is the likely delegating authority for a project like this and what sorts of things might need clarification?

Discuss bendigo and adelaide bank : Discuss Bendigo and Adelaide Bank's general external environment and analyse the impact of one real-life dimension in its general

Determine equivalent annual cash cost to the company : Using the MACRS for 5 years to calculate depreciation, determine the equivalent annual cash cost to the company for a 6 year study period.

What is your maximum gain and what is your net gain : Suppose you buy 30 March 100 put option contracts at price of $4.90 with a strike price of $100. What is your maximum gain? What is your net gain?

Budget assume in action plan development : What role does the budget assume in action plan development, selection, and implementation?

Discuss methods to identify customer needs : Develop Customer Service Plan Mr. Johnson recently established a travel agent business at George Street, Sydney as a private company limited.

Critical examination of the strategic planning : In terms of 'how', you need to conduct a critical examination of the strategic planning approach to conducting international marketing research that covers:

User Account

All Pages